EARLIER this month a London flat was sold to Rinat Akhmetov, a Ukrainian businessman, for £136.4m. It was a British record. Mr Akhmetov’s new home takes up the top three floors of One Hyde Park, a block of luxury flats in Knightsbridge designed by Richard Rogers, a celebrated British architect. Sales at the development are expected to top £1 billion. Buyers from Asia and the Middle East are said to be keen to secure an investment (or a bolthole) in west London. The prices paid are staggering: it is as if the rich world’s devastating housing bust hadn’t happened.

Some hope the buoyancy at the top end of the London market will lead to a broader recovery. British house prices have proved more resilient than America’s, which adds to the case for optimism. Prices at their lowest point were down by only a fifth from their level at the start of the credit crunch in August 2007. They have since recovered, and are now around 15% below their peak. Home prices in 20 big American cities, by contrast, fell farther and have struggled to make up ground (see chart).

The braver sort of investor might sense an opportunity. But beyond the fancier bits of London, the national market still looks rather frail. House prices have barely risen in the past six months. Would-be buyers are finding it hard to raise finance, because banks are worried that prices will fall and are demanding heftier deposits. The number of mortgages approved for house purchase is around half the long-run average. Far fewer homes are changing hands than at the market’s peak.

Nor is housing cheap. Homes are 30% overvalued against the long-run ratio of prices to rents, the gauge used in The Economist’s quarterly round-up of global house prices. On that basis, America’s housing market is close to fair value, but a handful of other markets (including China and Hong Kong) are starting to look pricey. London’s hotspots are in part an outgrowth of this emerging-market demand.

The varying fortunes of Britain and America reflect the peculiarities of each market. There have been fewer forced sellers in Britain. That is in part because unemployment rose less sharply. It is also because mortgages in many American states are “non-recourse”: when a loan turns sour, a lender can seize the property but has no rights over the borrower’s other assets or income. So if house prices fall below the value of the mortgage, a householder can walk away from his debt. Many have done so: fire sales of seized homes have weighed heavily on prices. Fewer homes have been dumped onto the market in Britain, where borrowers cannot escape debt so easily.

Other financial quirks proved critical too. America’s housing boom was fuelled by subprime borrowers, more likely than others to struggle with mortgage payments. Britain had fewer of those. And because most British mortgages are at variable interest rates, or are fixed for only a few years, sharp cuts in rates in Britain eased the burden on debtors more than rate cuts did in America, where many more mortgages are at fixed rates. Total interest payments on household debt in Britain fell to 7% of disposable income at the end of last year, the lowest level since 2003. Banks have been lenient, and repossessions have been far rarer than feared.

But interest rates will not always be so low. The Bank of England’s monetary-policy committee has been agonising for months over whether to raise them. Rate increases and a weak jobs market will uncover the “latent distress” in the housing market, says Paul Diggle, of Capital Economics, a consultancy. He expects a second round of price declines: a further 20% fall would bring prices back to their long-run average against earnings. London is Britain’s most overvalued region, says Mr Diggle. It cannot defy gravity forever.

What would such a prospect imply for a still-fragile economic recovery? Purists say that a further drop in house prices would merely shuffle wealth around. Homeowners would suffer, but those saving to buy a home would benefit. Reality is messier. Many householders have onerous debts, and would cut spending abruptly should prices plunge. For this reason, the housing market is likely to determine interest-rate decisions, not the other way round. If rate-setters prove cautious, house prices will take longer to reach bottom, but they are likely to fall all the same.